What is mortgage and how can you have two mortgage?
What is mortgage?
How do some people have two separate mortgage payments?
Why would you need mortgage insurance?
Sorry, i thought i knew what it all was then after reading up on everything i just got extremely confused… someone help lol THANK YOU
A mortgage is a loan from a financial institution allowing you to purchase a home. Typically, you will put down 20% of the value of your home and mortgage 80%. Some people will take out a second mortgage (at a higher interest rate) to take money out of their home that they have vested. Here’s an easy example:
A home cost $100,000 that you want to purchase. You put down $20,000, and a bank finances $80,000. So right now, you “own” $20K of your home. Now lets say you need $10,000 for some reason. You can take out a second mortgage because you “have” $20,000…it’s just not available (it’s in your house). So now you “own” $10,000 of your home, you have $10,000 in cash you borrowed with your second mortgage (at a higher rate) and you borrowed $80,000 with your first loan.
PMI (insurance) will typically be required by a bank if you are unable to “own” 20% of your home. It will protect the bank’s investment in the event you default on your loan and the bank cannot recoup your outstanding debt after the foreclosure on your home. A nice trick, however, is the 80-10-10, where you take out a first for 80%, and a second for 10% (and provide 10% in cash). You will get “credit” for having 20% and therefore avoid paying PMI. This can be advantageous because a mortgage payment is tax deductible while PMI is not. The payments will be approximately the same, but because the interest is higher on the second you stand to receive a substantial refund come tax time for all the interest you pay. Later, you can refinance your first to include your second if your house has appreciated enough.
When you get money from a bank/credit union to buy a house they give you a mortgage which is a promise to pay and a schedule to do so.
Some people who are cash strapped take out a second mortgage to get money to help themselves out. Not a good idea if you can avoid it. It just means you owe more money on your house.
Mortgage insurance is something that says if things get rough whatever this will back you up so you don’t lose your home.
While some say that this is for the lender it is true that the bank/credit union makes the borrower take the insurance out to cover situations when the mortgage can’t be paid. So, in reality it is something the person taking the mortgage out has to do to cover a possible scenerio of them not being able to pay the mortgage.
For example, Mr. Smith obtains a mortgage loan that exceeds 80% (the typical cut-off) of his property’s value and/or sale price. Because of his limited equity, the lender requires that Mr. Smith pay for mortgage insurance that protects their institution against his default. To obtain a mortgage loan insured by the Federal Housing Administration, Mr. Smith must pay a mortgage insurance premium (MIP) equal to 1.5 percent of the loan amount at closing. This premium is normally financed by the lender and paid to FHA on the borrower’s behalf. Depending on the loan-to-value ratio, there may be a monthly premium as well.